Startups uncertainty during the Covid-19 crisis: Regression analysis on the epidemic new cases and startup investment funds

Abstract

Establishing startups is now a popular method for entrepreneurs to earn profit in an effective way. However, the environmental instability and failure rate of a start-up are its great disadvantages and limitations especially while facing some crisis events. This paper will elucidate how COVID-19 (the main crisis event nowadays) affects the new startups and their financing ability. To be more specific, this paper will illustrate what is the relationship between the variable of COVID-19 new cases and the funds investment for new startups around the world by employing the GEI Index as the other variable. It shows the dramatic decline in general startups investment by setting up the classical regression model and testing the cointegration relationship between the two variables. To be more specific, this paper will begin with a general trend analysis to compare whether the COVID-19 new cases line fits the change of the GEI Index line. Then, a unit root test is done to prevent spurious regression. Furthermore, a cointegration test is necessary to show and verify the detailed relationship. The paper shows that there is a negative but long-term and stable relationship between COVID-19 new cases and GEI Index in a specific time period and it means that the more every day new cases totally, the less an entrepreneur’s fund invests in startups.